Netflix shares have dropped more than 35% from their June 2025 high, prompting investors to reassess the outlook for the streaming giant as it navigates margin uncertainty, engagement headwinds, and evolving deal dynamics linked to Warner Bros. Discovery.
According to Bernstein, Netflix is now trading at roughly 22 times estimated 2027 earnings. The firm noted that the stock appeared particularly attractive immediately after the fourth-quarter earnings release, although market sentiment has since weakened.
Bernstein analyst Laurent Yoon highlighted three key issues shaping the current debate around Netflix’s valuation and future performance.
The first concern centers on margin expectations for 2026. Netflix’s guidance for a 32% EBIT margin fell well short of market forecasts. While Bernstein expects management to raise its margin outlook later this year, it cautioned that higher content spending may be required to support growth. Yoon added that reaching a mid-30% margin in 2026 could prove challenging, even if guidance is revised upward mid-year.
The second challenge relates to user engagement. Bernstein sees no single solution to reverse shifting viewing habits but noted that Netflix is expanding its content strategy across both local and global markets in an effort to stabilize and grow engagement.
The third, and potentially most impactful, factor is Netflix’s interest in Warner Bros. Discovery. Yoon said that access to WBD’s content library could significantly boost Netflix’s price-to-quality dynamics, although any transaction would likely come with a substantial cost.
Bernstein emphasized that the investment case for Netflix now largely depends on how the WBD situation unfolds. Potential outcomes range from Netflix acquiring WBD at the current valuation to a rival bidder, such as PSKY, pursuing a highly leveraged deal that could reduce competitive pressure in the streaming landscape.
